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Skilled Emigration, Wages and Real Exchange Rate in a Globalized World

Alice Ouyang and Saumik Paul

No 2014-11, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: Building on a simple analytical model, we provide cross-country empirical evidence from 67 countries that the net skilled emigration appreciates bilateral real exchange rates in source countries. Channels of causality, when Law of One Price (LOOP) holds, are through "spending effect" and "resource allocation effect", analogous to the remittance-based Dutch disease effect. Pricing-to-market model allows pass-through for both tradable and nontradable prices when LOOP is violated. Internal (relative price of tradable to nontradable) price explains about 60% of the RER appreciation, which is mostly driven by the outcomes on developing countries. The outcomes are robust across different levels of skilled emigration, alternative model specifications and withstand placebo tests with unskilled emigration.

Keywords: Emigration; Exchange Rate; the Dutch Disease (search for similar items in EconPapers)
JEL-codes: F22 F31 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2015-03
New Economics Papers: this item is included in nep-mig and nep-opm
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